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  • FIRST POST
    • newbiesaver55
    • By newbiesaver55 14th Mar 17, 2:27 PM
    • 66Posts
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    newbiesaver55
    Charges - FriendsLife - additional pension contribution... :(
    • #1
    • 14th Mar 17, 2:27 PM
    Charges - FriendsLife - additional pension contribution... :( 14th Mar 17 at 2:27 PM
    So I thought I was doing the right thing by making an additional pension contribution of almost 2k incl tax for a previous tax year whilst I still can (14-15)...

    But today I received paperwork from FriendsLife 'Post Sale Documentation' - buried in page 8 no less - saying that assuming mid-growth rate of 2.5% I could pay 789 in charges on this amount by age of 65. (Currently early 40s).

    It's a 1% charge - stakeholder personal pension plan scheme.

    This has come as a shock - have I done the wrong thing?! I have 30 days to cancel it and perhaps throw some down the nearest drain instead...!

    Help!
Page 1
    • alewin
    • By alewin 14th Mar 17, 2:57 PM
    • 48 Posts
    • 79 Thanks
    alewin
    • #2
    • 14th Mar 17, 2:57 PM
    • #2
    • 14th Mar 17, 2:57 PM
    Is that growth rate after the 1% charge or before.

    Even if your original 2000 stayed constant, 20 a year charge over 25 years comes to 500. With their mid-growth rate, I'd say probably around the high 600's over 25 years.
    • newbiesaver55
    • By newbiesaver55 14th Mar 17, 3:45 PM
    • 66 Posts
    • 35 Thanks
    newbiesaver55
    • #3
    • 14th Mar 17, 3:45 PM
    • #3
    • 14th Mar 17, 3:45 PM
    after the 1% charges...

    So is this normal? I am gobsmacked!
    • dunstonh
    • By dunstonh 14th Mar 17, 3:57 PM
    • 88,375 Posts
    • 53,591 Thanks
    dunstonh
    • #4
    • 14th Mar 17, 3:57 PM
    • #4
    • 14th Mar 17, 3:57 PM
    after the 1% charges...

    So is this normal? I am gobsmacked!
    What are you gobsmacked about?

    A stakeholder pension cannot charge more than 1% p.a. So, having a stakeholder at 1% p.a. is not something that should surprise you.

    buried in page 8 no less - saying that assuming mid-growth rate of 2.5% I could pay 789 in charges on this amount by age of 65. (Currently early 40s).
    That is more likely the effect of charges if not taken and invested at 2.5% rather than the actual charges.

    I'm struggling to see a problem here. Other than stakeholders being a largely obsolete product that is only suitable for a niche market.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • kidmugsy
    • By kidmugsy 14th Mar 17, 4:01 PM
    • 9,377 Posts
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    kidmugsy
    • #5
    • 14th Mar 17, 4:01 PM
    • #5
    • 14th Mar 17, 4:01 PM
    So I thought I was doing the right thing by making an additional pension contribution of almost 2k incl tax for a previous tax year whilst I still can (14-15)...
    Originally posted by newbiesaver55
    Eh? How can you make a contribution for 14-15 in 2017? Surely that possibility vanished years ago.
    • sandsy
    • By sandsy 14th Mar 17, 4:02 PM
    • 1,134 Posts
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    sandsy
    • #6
    • 14th Mar 17, 4:02 PM
    • #6
    • 14th Mar 17, 4:02 PM
    That's 1% each year for 20 odd years. So if there was no growth, 1% this year would be 20..... for 20 years added together would be roughly 400 (ignoring charges previously paid). So with 2.5% (real) growth on your 2k, it's naturally higher.

    The figure you are given also includes the return you've lost out on as a result of charges being deducted from your fund.
    • Asghar
    • By Asghar 14th Mar 17, 4:23 PM
    • 94 Posts
    • 41 Thanks
    Asghar
    • #7
    • 14th Mar 17, 4:23 PM
    • #7
    • 14th Mar 17, 4:23 PM
    How much total do you have in your pension with FriendsLife, not just the 2k you have added.

    If it's say 50k then that's 500 per year assuming no growth, totaling 12500 over the next 25 years. That's normal and how charges work when investing in pensions and funds etc.
    The growth however, in the long run, should be much more than the charges and therefore much better off.
    • bigadaj
    • By bigadaj 14th Mar 17, 6:40 PM
    • 9,363 Posts
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    bigadaj
    • #8
    • 14th Mar 17, 6:40 PM
    • #8
    • 14th Mar 17, 6:40 PM
    Eh? How can you make a contribution for 14-15 in 2017? Surely that possibility vanished years ago.
    Originally posted by kidmugsy
    That's certainly of more concern than fairly average if slightly expensive charges over many years to come.
    • newbiesaver55
    • By newbiesaver55 15th Mar 17, 11:13 AM
    • 66 Posts
    • 35 Thanks
    newbiesaver55
    • #9
    • 15th Mar 17, 11:13 AM
    • #9
    • 15th Mar 17, 11:13 AM
    Thanks for the replies...

    Yep I was pretty surprised that over time almost 50% of my personal contribution, would be swallowed up in charges...proportionally it seems high. You'll just have to live with the fact that there are some very mathematically ignorant people around I guess!

    May I not attribute the contribution to 14-15 then I take it...? It looks like I can make changes so no harm done if so. Unless FL really don't know what they are doing ...

    Very interested to hear there may be a newer alternative to a stakeholder pension, dunstonh?
    • dunstonh
    • By dunstonh 15th Mar 17, 12:21 PM
    • 88,375 Posts
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    dunstonh
    Yep I was pretty surprised that over time almost 50% of my personal contribution, would be swallowed up in charges
    That is you misreading the projection examples. The regulator brought in the way they display these figures back in the 90s when nearly 100% of pensions had an agent or adviser to run through the illustration and explain things.

    Nowadays, a lot of people DIY and dont have an adviser (and agents almost do not exist any more). However, the regulator still has the same requirements on illustrations and they are not consumer friendly.

    Your savings accounts have a higher charge than the pension. Difference is that the savings account, you dont see it. The pension you do. Would you rather get 1% p.a in a savings account with no explicit charge mentioned or 7% p.a. after a 1% charge in a pension?

    Very interested to hear there may be a newer alternative to a stakeholder pension, dunstonh?
    Stakeholder pensions were introduced in 2001. By around 2006, personal pensions had changed enough to start being better than stakeholder on all but the smallest amounts. e.g. providers out there who can do 0.40% p.a. on 20k plus.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • sandsy
    • By sandsy 15th Mar 17, 1:46 PM
    • 1,134 Posts
    • 656 Thanks
    sandsy
    Thanks for the replies...

    Yep I was pretty surprised that over time almost 50% of my personal contribution, would be swallowed up in charges...proportionally it seems high. You'll just have to live with the fact that there are some very mathematically ignorant people around I guess!
    Originally posted by newbiesaver55
    You're not looking at it correctly. The figure is an indication of the amount you don't get back at the end of the investment period due to charges. So you can't compare it directly with the contribution you made at the start of the investment period. Comparing two financial values at different points in time makes no sense.
    • newbiesaver55
    • By newbiesaver55 15th Mar 17, 8:01 PM
    • 66 Posts
    • 35 Thanks
    newbiesaver55
    Sandsy I'm struggling to get my head around that!

    Dunstoh that's interesting re the savings... and ditto the much cheaper pensions... ! I have 20k in the pension... maybe I should transfer it then??

    Does anyone know if I can attribute the single contribution to a previous tax year, please? Pretty confused re that...
    • bigadaj
    • By bigadaj 15th Mar 17, 10:20 PM
    • 9,363 Posts
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    bigadaj
    No, you can only pay into a pension for the current tax year.
    • bigadaj
    • By bigadaj 15th Mar 17, 10:21 PM
    • 9,363 Posts
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    bigadaj
    No, you can only pay into a pension for the current tax year.
    Originally posted by bigadaj
    Edit - you can use carry forward if your contribution exceeds 40000 is this the case?
    • coyrls
    • By coyrls 15th Mar 17, 11:03 PM
    • 804 Posts
    • 802 Thanks
    coyrls
    Edit - you can use carry forward if your contribution exceeds 40000 is this the case?
    Originally posted by bigadaj
    But the contribution is still for the current tax year and you must have enough relevant earnings in the current tax year to allow the extra contribution.
    • newbiesaver55
    • By newbiesaver55 16th Mar 17, 11:27 AM
    • 66 Posts
    • 35 Thanks
    newbiesaver55
    My extra contribution plus previous contributions matched my earnings for that year...
    • bigadaj
    • By bigadaj 16th Mar 17, 8:11 PM
    • 9,363 Posts
    • 5,983 Thanks
    bigadaj
    My extra contribution plus previous contributions matched my earnings for that year...
    Originally posted by newbiesaver55
    Yes, but you can't make any contribution after the end of that tax year.
    • newbiesaver55
    • By newbiesaver55 17th Mar 17, 7:34 AM
    • 66 Posts
    • 35 Thanks
    newbiesaver55
    Bigadj - do you mean I can't make further contributions to that pension - full-stop? I'm currently making a monthly contribution...
    • bowlhead99
    • By bowlhead99 17th Mar 17, 7:45 AM
    • 6,502 Posts
    • 11,500 Thanks
    bowlhead99
    Bigadj - do you mean I can't make further contributions to that pension - full-stop? I'm currently making a monthly contribution...
    Originally posted by newbiesaver55
    You can't make any further contribution in the current tax year and say it is a contribution out of previous year earnings. If you wanted to contribute from a previous years earnings you would need to have done it in that previous year.

    You can contribute this year but it's counted against *this year's* earnings.
    Last edited by bowlhead99; 17-03-2017 at 8:05 AM.
    • newbiesaver55
    • By newbiesaver55 17th Mar 17, 11:25 AM
    • 66 Posts
    • 35 Thanks
    newbiesaver55
    Thank you so much - trying to get my head around all of this. Why don't we learn about pensions at school?!
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